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Identification and Estimation of Discrete Games of Complete Information

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Author Info
Patrick Bajari
Han Hong
Stephen Ryan
Abstract

We discuss the identification and estimation of discrete games of complete information. Following Bresnahan and Reiss (1990, 1991), a discrete game is a generalization of a standard discrete choice model where utility depends on the actions of other players. Using recent algorithms to compute all of the Nash equilibria to a game, we propose simulation-based estimators for static, discrete games. With appropriate exclusion restrictions about how covariates enter into payoffs and influence equilibrium selection, the model is identified with only weak parametric assumptions. Monte Carlo evidence demonstrates that the estimator can perform well in moderately-sized samples. As an application, we study the strategic decision of firms in spatially-separated markets to establish a presence on the Internet.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Technical Working Papers with number 0301.

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Date of creation: Oct 2004
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Handle: RePEc:nbr:nberte:0301

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Find related papers by JEL classification:
L0 - Industrial Organization - - General
L2 - Industrial Organization - - Firm Objectives, Organization, and Behavior
C1 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: General
C7 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory

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  1. Jesús Fernández-Villaverde & Juan F. Rubio-Ramirez & Manuel Santos, 2005. "Convergence Properties of the Likelihood of Computed Dynamic Models," Levine's Bibliography 122247000000000822, UCLA Department of Economics. [Downloadable!]
    Other versions:
  2. Echenique, Federico & Komunjer, Ivana, 2007. "A test for monotone comparative statics," Working Papers 1278, California Institute of Technology, Division of the Humanities and Social Sciences. [Downloadable!]
    Other versions:
  3. Echenique, Federico & Komunjer, Ivana, 2005. "Testing Models w/ multiple equilibria by quantile methods," Working Papers 1244, California Institute of Technology, Division of the Humanities and Social Sciences. [Downloadable!]
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